INTERACTIVE: Vietnam can fully absorb polyolefins from Long Son project

20 July 2017 06:17 Source:ICIS News

SINGAPORE (ICIS)--Vietnam could fully absorb the huge polyolefin production expected from Siam Cement Group’s (SCG) Long Son Petrochemical Complex (LSPC), which is due to start up in 2022, according to analysts.

The country imported about 2.3m tonnes of combined polyethylene (PE) and polypropylene (PP) last year.

LSPC, which will be the country’s first petrochemical complex, is located around 100 kilometres away from Ho Chi Minh City – Vietnam’s main market and economic heartland.

“We see several positives in the project,” according to analysts at Japanese brokerage Nomura Securities. “This is the first petchem cracker in Vietnam, which we see as an attractive and currently under-supplied market.”

Thai conglomerage SCG said on 14 July that a decision has been made to proceed with the $5.4bn or baht (Bt) 188bn LSPC project, which will be financed by 60% debt and 40% equity.

Non-petrochemical supporting infrastructure, such as a deep sea port and other facilities, will account for about 30% of the total investment cost, according to SCG.

SCG indirectly owns 71% of the project via its wholly-owned subsidiary Vina SCG Chemicals Co (VSCG), while state-owned oil and gas firm PetroVietnam holds the remaining share in the project.

LSPC will house a 1m tonne/year cracker with flexible gas and naphtha feed, to yield up to 1.6m tonnes/year of olefins, depending on the feedstock mix, the company said.

The feedstock will consist of locally sourced ethane, as well as imported propane and naphtha, it said.

“The downstream polyolefin operations will be of similar scale to the cracker, consisting of high density polyethylene (HDPE), linear low density polyethylene (LLDPE) and polypropylene (PP) plants,” the company said.

The project is estimated to be completed in four-and-a-half years, with commercial operation expected by the first half of 2022, according to SCG.

Partnering with PetroVietnam is a key strategic advantage for SCG that should help navigate regulatory issues, according to Nomura.

SCG began its business operations in Vietnam in 1992 with a trading unit, and gradually expanded investments into diversified businesses in the cement-building materials, chemicals, and packaging industries.

The LSPC project had been stalled for years amid the downturn of the oil and petrochemical prices in 2014, and was hit by another setback when Qatar Petroleum International (QPI) withdrew from the project in December 2015.

QPI, which was supposed to be the feedstock supplier for the project, sold to SCG its 25% stake in Long Son Petrochemicals Co, which is the joint venture firm that will operate the new complex.

SCG is confident that it will be able to source feedstock on-long term contracts from other suppliers in the market, noted Singapore-based DBS Group Research.

“Our key concern is on the outlook during the early years after the plant commences as we expect the industry cycle for the petrochemical business to enter a tough period when new capacity (including the Long Son project) enters the market. This could be a drag on SCG’s earnings performance during those years,” it said.

According to Krungsri Securities, global ethylene supply growth will match the increase in demand at 4% per year over 2017-2021, and take global ethylene capacity to 197m tonnes by 2021.

Eight new crackers with a combined 11m-ton capacity will be using shale gas, representing a third of the 35m tons of total new ethylene capacity.

For propylene, supply is expected to grow 5% in 2017, 4% in 2018, and 3% per year over 2019-2021. Total supply will reach 143m tons by 2021, with the bulk of new capacity in north Asia, and produced through the propane dehydrogenation (PDH) process. This will account for 14% of global propylene capacity, the Thai brokerage said.

Another 9% will be from the coal-to-olefins (CTO) and methanol-to-olefins (MTO) process.

“It remains unclear if all announced CTO and MTO capacity will commence as planned because these operations require abundant water. Some areas in China may not have the required water supply,” Chantaraserekul said.

In the near term, SCG’s management believes that chemical spreads will remain strong through 2021 before the start-up of LSPC, led by stable demand growth and limited new supply, he said.

Chemicals will remain as the key earnings driver for SCG this year, Chantaraserekul said.

In 2016, chemicals had a 75% contribution to the conglomerate’s total earnings.

Please click on the full screen button on the bottom-right of the infographic below to view in full screen.

($1 = Bt33.60)

Picture (top): A SCG building (Source: SCG website)

Focus article by Nurluqman Suratman

By Nurluqman Suratman